Reservations With the Fed's Demand for TARP Repayment Plans

The Federal Reserve has asked nine bailout-receiving banks for their plans to repay the money, according to Bloomberg. The move comes amid public debate about the merits of the Troubled Asset Relief Program, which is due to expire at the end of this year. Will the demand help make the case for TARP's extension or is putting pressure on the banks bound to backfire? Though reeling in taxpayer dollars from Wall Street is appealing, some commentators think it could tip unsteady firms over the edge.

Too Late to Save TARP Daily Finance's Lisa Epstein thinks that the government is trying, desperately, to change the image of the program, which "remains unpopular with the public because of the perception that it bails out Wall Street and leaves out Main Street." But while the Fed's new demand may smooth things over a bit, she doesn't "think it will help win support for [the] continuation" of the program. Only a drastic change in compensation packages and reversal of the money flow back to non-Wall Street institutions will do that.

'Probably a Bad Idea,' pronounces 24/7 Wall St.'s Douglas McIntyre. "Major banks are not out of the financial woods and their balance sheet problems will get worse in some cases." In fact, he says that "the Fed and Treasury may want to consider keeping some of the TARP funds in reserve so that they do not have to go back to Congress for new funding later"--banks may need more help, and with the new focus on the deficit, legislators are unlikely to want to give it.

Let's Tweak This Proposal Bill McBride of finance blog Calculated Risk wonders, for starters, why it's the Fed and not the Treasury asking for repayment plans: "The Fed conducted the stress tests, but didn't the Treasury loan the money?" Also, he says he'd "like to see the plans," when they are submitted, "made public."

This article is from the archive of our partner The Wire.

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